Beijing: The cost of producing goods in China's factories slowed sharply in December, a sign demand remains weak as the US trade war drags on, while consumer inflation also flagged, official data showed on Thursday.

The producer price index (PPI) — an important barometre of the industrial sector that measures the cost of goods at the factory gate — rose 0.9 per cent on-year in December, compared with a 2.7 per cent rise the previous month.

The reading marks the lowest growth since September 2016, and fell short of forecasts in a Bloomberg News survey.

A slowdown in factory gate inflation reflects sluggish demand, while a turn to deflation could dent corporate profits.

Lu said the PPI was expected to turn negative, which would put "further downward pressure on China’s growth".

The weak figures come as China's trade war with the US starts to bite and economic growth slows, with data last week showing manufacturing sector contracted in December for the first time in more than two years.

There are hopes for a breakthrough in the trade row, with a US negotiating team leaving Beijing on Wednesday after three days of talks that China said had "laid the foundation" to resolve concerns held by both sides.